Inside the Market’s roundup of some of today’s key analyst actions
Analysts aren’t finding too much to like in Transat AT Inc.’s (TRZ-T) quarterly results, which suffered from the threat of a strike by its flight attendants, engine issues impacting some of its aircraft, and increased leasing costs of its aircraft.
Several reduced their earnings estimates and cut their price targets. CIBC cut its target price to C$2.9 from C$3; Desjardins Securities cut its target to C$4 from $5.75; and National Bank of Canada trimmed its target price to C$3 from C$3.25.
Transat reported an adjusted EBITDA loss in its fiscal first quarter of $8.6 million, below consensus of a profit of $24 million, while revenue came in at $785 million, also below consensus of $804 million. Guidance also disappointed followers of the stock, with Transat now believing adjusted EBITDA margin for fiscal year 2024 will likely be at the lower end of the 7.5–9.0 per cent forecasted range. Management also decreased its capacity expansion plan to 13 per cent from 19 per cent.
An engine issue that has currently grounded four of its aircraft pressured profitability. Meanwhile, the leasing market has tightened as many carriers are looking for additional aircraft following continued industry challenges, including delivery delays for the problem-plagued 737 Max aircraft, leading to price increases.
And the threat of a flight attendant strike had significant impact on bookings. “The persistent speculation resulted in lower bookings and higher cancellations. TRZ’s load factor decreased to 80.2% (down from 84.5% last year) and its yield declined 3.1% yoy,” noted Desjardins Securities analyst Benoit Poirier.
Mr. Poirier reiterated a “hold” rating. “We prefer to remain on the sidelines while awaiting additional deleveraging and execution of the strategic plan,” he said.
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Analyst price targets are coming down this morning for Empire Company Ltd (EMP-A-T), which reported fiscal third quarter results this week and guidance that highlighted the challenging macroeconomic environment - especially when it comes to price-conscious consumers.
National Bank of Canada cut its price target to C$40 from C$41; RBC cut its target price to C$43 from C$49; Desjardins Securities reduced its target to C$38 from C$39; BMO cut its target price to C$35 from C$37; and TD Securities cut its target price to C$36 from C$37.
Empire’s stock was down 2.6 per cent on Thursday following the results, compared with only a 0.6 per cent drop in the S&P/TSX Composite Index.
“We attribute EMP’s underperformance partly to management’s comments that adjusted EPS in 4Q will be similar to 3Q (~C$0.62 vs previous consensus of ~C$0.71). Macroeconomic pressures continue to weigh on consumers. Given EMP’s high exposure to the higher-priced, full-service format, this is impacting same-store sales, with growth decelerating in the second half of 3Q and persisting into 4Q,” Desjardins Securities analyst Chris Li said in a note to clients.
But Mr. Li reiterated a “buy” rating on the expectation that things will improve in the next fiscal year. He expects shares to be rangebound, however, until consumer spending improves.
“We believe FY24 likely represents trough earnings, with growth resuming in FY25. We have lowered our FY25 EPS to C$2.95 (from C$3.09) to reflect continuing macro pressures in 1H. For the full year, we are forecasting SSSG [same store sales growth] of 2.5% (vs 2.3% in FY24), gross margin up 20bps (in line with management’s target, supported by ongoing supply chain efficiencies) and a modest increase in SG&A expense rate of 10bps (vs 70bps in FY24). We estimate that this should drive ~4% adjusted net earnings growth (vs -6% in FY24). Combined with EMP buying back ~4% of its shares, EPS should grow ~8% in FY25,” he said in a note.
He added, “Our positive view is based on EMP’s large discount to peers (~11x forward P/E vs ~17x for L and MRU), which we believe is unwarranted assuming it can achieve 8–11% EPS growth in the longer term once market conditions normalize.”
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Verticalscope Holdings Inc. (FORA-T) was upgraded by three analysts following a very well-received earnings report this week.
Canaccord Genuity upgraded its rating to “buy” from “speculative buy” while raising its price target to C$10.25 from C$7.25. CIBC upgraded its rating to “outperformer” from “neutral” while raising its target price to C$9 from C$6. And TD Securities upgraded its rating to “action list buy” - its highest recommendation for a stock - from “buy” in raising its price target to C$12 from C$7.5.
Elsewhere, RBC raised its target price to C$14 from C$13; Cormark Securities raised its target to C$9.25 from C$8.25; and Eight Capital raised its target price to C$9 from C$7.
Verticalscope reported stronger-than-expected adjusted EBITDA and free cash flow, which rose 14.6 per cent and 91 per cent, respectively, year over year alongside digital ad growth. The positive results allowed an acceleration of debt being paid off.
Meanwhile, monthly active users rose to 107.7 million in the fourth quarter from 100.5 million in the third quarter.
Canaccord analyst Aravinda Galappatthige said the outlook for the company is now “notably better” in the wake of the fourth quarter results.
“The positive trends through H2/23 and Q4/23 in particular, coupled with fairly clear indications from management of further strength in digital advertising going into Q1/24, suggests a meaningful uptick in the revenue outlook. In Q1/24, we expect the company to return to revenue growth for the first time since Q3/22 (on an organic basis from Q2/22),” Mr. Galappatthige said.
“In addition to the improving ad outlook, a number of other higher-level factors are emerging as tailwinds. First, comments on the call suggest ongoing negotiations with respect to monetizing the depth of FORA’s content in terms of offering access to it to train LLMs [large language models]. There are already reports of sizable deals that have been cut by Reddit on this front (e.g., $60M a year with Google alone). Second, algorithm changes from search engines (led by Google) continue to focus on deprioritizing the mass of AI-generated content piles in favour of authentic perspectives, which certainly assists the company. In fact, we understand that the March 2024 algo changes were the most marked in this respect. Recall that FORA was already benefitting on this front from recent search engine changes, which explains the recent uptick in monthly active users. Third, the retirement of the third-party cookie, which appears to be finally occurring, is also expected to raise the value of the company’s first-party data and access,” the Canaccord analyst said.
Third-party cookies are used principally for web tracking as part of the web advertising ecosystem.
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Analysts are slashing price targets on Tidewater Midstream and Infrastructure Ltd (TWM-T) following an earnings miss.
National Bank of Canada cut its target to C$1 from C$1.1; Scotiabank cut its target to C$1.1 from C$1.5; CIBC cut its target to C$1.1 from C$1.5 and downgraded its rating to “neutral” from “outperformer”; and RBC cut its target price to C$1 from C$1.5.
Tidewater shares sunk 9 per cent Thursday on the earnings report.
“While we bring down our 2024 estimates and target price, we believe the magnitude of the share price move is an overreaction as our 2025 estimates only move down slightly (3%). It would appear the commissioning issues with the renewable diesel facility (HDRD) are behind them with the facility operating at nameplate capacity in recent weeks,” Scotiabank said in a note.
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BMO raised its price target and earnings estimates on Power Corporation of Canada (POW-T) after better-than-expected results at its Great-West Lifeco unit.
“We increase our Q4/23E adjusted EPS estimate to $1.08 from $1.05 (vs. $1.06 consensus), reflecting better-than-expected base EPS results from GWO, partially offset by a weaker contribution from GBLB based on its Q4/23 results. 2024E adjusted EPS increases to $4.55 from $4.49 reflecting our increased GWO estimates. We introduce 2025E adjusted EPS of $4.97,” said BMO analyst Tom MacKinnon.
His price target on Power went to C$41 from C$38 and he maintained a “market perform” rating. Power reports earnings in the post market this coming Wednesday.
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Calfrac Well Services Ltd. (CFW-T) was hit with at least two rating downgrades, and several more price target cuts, as analysts expressed displeasure with the energy services company’s latest guidance.
RBC cut its target price to C$5.5 from C$6.5; Stifel cut its target price to C$5 from C$7 and downgraded its rating to “hold” from “buy”; and Atb Capital Markets cut its price target to C$6 from C$10 and downgraded its rating to “sector perform” from “outperform”.
“CFW reported 4Q23 results that were largely in line with expectations. However, due to a challenging 1Q24, a reduction in its U.S. fleet count and concerning peer commentary around frac pricing, CFW’s near-term outlook has materially changed in our view,” Stifel analyst Cole Pereira said in a note.
“Our EBITDAS forecasts decline 25% in 2024 and 11% in 2025,” the analyst added. “CFW continues to boast meaningful upside to a U.S. activity recovery while its financial position is stronger than it’s been in years (if not ever), but in the near-term we expect U.S. macro headwinds and material negative EBITDAS revision to limit upside on the stock from here.”
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In other analyst actions:
Alaris Equity Partners Income Trust (AD-UN-T): RBC raises price target to C$18 from C$17
Blackline Safety Corp (BLN-T): Canaccord Genuity raises target price to C$5.25 from C$5; TD Securities raises target price to C$6 from C$5.5
Interrent REIT (IIP-UN-T): Cormark Securities raises PT to C$16 from C$15.25
Enghouse Systems Ltd (ENGH-T): TD Securities cuts target price to C$35 from C$38
Mattr Corp (MATR-T): Canaccord Genuity raises target price to C$25 from C$23.50; RBC cuts target price to C$18 from C$22; Atb Capital Markets cuts target price to C$23.25 from C$24.25; BMO raises target price to C$21 from C$20; Cormark Securities raises target price by C$1 to C$22; National Bank of Canada raises PT to C$21.5 from C$20.5; Stifel raises target price to C$28 from C$26; TD Securities raises target price to C$18 from C$17
Medical Facilities Corp (DR-T): RBC raises target price to C$12 from C$11
Minto Apartment REIT (MI-UN-T): Cormark Securities raises PT to C$20.5 from C$18.5
Nexus Industrial REIT (NXR-UN-T): CIBC cuts target price to C$9.75 from C$10.5; National Bank of Canada cuts PT to C$8.5 from C$8.75; TD Securities cuts target to C$8 from C$8.5
North American Construction Group (NOA-T): CIBC raises target price to C$33 from C$32.5; National Bank of Canada ups PT to C$46 from C$43
Tidewater Renewables Ltd (LCFS-T): CIBC cuts target price to C$12 from C$13; Cormark Securities cuts target to C$10 from C$15.75; RBC cuts target price to C$12 from C$15
Darcy Keith